Latest / The 3Bz Podcast - Building Better Business / EP154 - 5 Financial Red Flags That Signal a Business Is About to Struggle

Transcript

EP154 - 5 Financial Red Flags That Signal a Business Is About to Struggle · The 3Bz Podcast - Building Better Business

• 0:01
  Hi there business owner, and welcome to the Three BS Podcast,
• 0:04
  the place where we go beyond the numbers and dive into the
• 0:07
  strategies to help you build a Better Business one step at a
• 0:10
  time. I'm your host, Stephanie, a
• 0:12
  multi awarding entrepreneur with over a decade of experience in
• 0:15
  the bookkeeping and currency world.
• 0:17
  If you're a business owner looking to streamline, grow and
• 0:19
  get back the time that you deserve, you're in the right
• 0:21
  place tackling real world problems, answering tough
• 0:24
  questions and digging deep into business building secrets in
• 0:27
  just 15 minutes each week. So Are you ready to build a
• 0:31
  Better Business with confidence and clarity?
• 0:33
  Then let's go. Hello and welcome back to
• 0:36
  another episode of The Three BS Podcast, your go to place for
• 0:40
  around 50 minutes of motivation, education and inspiration each
• 0:44
  week to help you build a Better Business.
• 0:47
  If we've not met before, hi, my name is Stephanie Marshall.
• 0:50
  I'm a bookkeeper, business owner, podcaster, author, and
• 0:53
  someone who cares deeply about the humans behind businesses and
• 0:57
  helping them to build better ones.
• 0:59
  Now today's episode is an interesting one because it comes
• 1:02
  from something I see quite a lot in my line of work.
• 1:05
  When you work in the bookkeeping and accountancy world, you end
• 1:08
  up with a slightly unusual view of businesses because you get to
• 1:12
  see behind the scenes. You see the numbers, you see the
• 1:15
  patterns, and sometimes you see the problems forming long before
• 1:20
  the business owner realizes that something is wrong.
• 1:22
  And that's not because business owners are doing anything wrong
• 1:25
  intentionally, but because when you're running a business,
• 1:27
  you're often very close to it. You're in their day-to-day busy,
• 1:31
  serving clients, delivering work, managing A-Team, and
• 1:34
  dealing with all those day-to-day chaos and firefights
• 1:36
  that running a business can sometimes bring.
• 1:39
  The numbers tend to get looked at last.
• 1:41
  So in today's episode I want to talk about 5 financial red flags
• 1:45
  I often see before a business starts to struggle.
• 1:48
  And the good news is that these red flags are not signs of
• 1:51
  failure. They are early warning signals,
• 1:53
  which means there are still opportunities to fix things
• 1:56
  before they become much bigger problems.
• 1:58
  If you've listened to any episode of the Three BS Podcast
• 2:01
  before, you know what I'm about to say.
• 2:03
  Red flag #1 avoiding the numbers.
• 2:06
  This is probably the most common one.
• 2:08
  Sometimes when I speak to business owners and ask
• 2:11
  questions like what was your profit last quarter?
• 2:14
  What's your VAT position right now?
• 2:16
  What are your monthly overheads, I get a slightly uncomfortable
• 2:19
  pause. Now please know that there is
• 2:21
  absolutely no judgement here. Most business owners did not
• 2:25
  start their business because they love spreadsheets and
• 2:27
  financial reports. I know I'm the odd one out in
• 2:30
  that situation, but avoiding the numbers does not make them
• 2:33
  disappear. In fact, burying your head in
• 2:36
  the sand usually makes them even more stressful.
• 2:39
  Businesses that run calmly tend to have a simple rhythm when it
• 2:42
  comes to finances. They review their numbers
• 2:45
  regularly as part of their daily, weekly, monthly workflow.
• 2:49
  It's it's A to do list task that gets done consistently and it
• 2:55
  just becomes part of your everyday life.
• 2:57
  Not obsessively either, just regularly enough that they
• 3:00
  understand what's happening in their business.
• 3:03
  When you know your numbers, you can make decisions with
• 3:05
  confidence. When you do not know your
• 3:08
  numbers, you're just guessing. And guessing in business can
• 3:11
  become expensive really fast. Which leads me into red flag #2
• 3:15
  being constantly behind with your bookkeeping.
• 3:17
  Now this is something I see a lot and I get it.
• 3:20
  You're busy doing your day save run of your business.
• 3:23
  Bookkeeping falls behind because there's a new project or a busy
• 3:26
  period at work. A few weeks then become a few
• 3:28
  months, and suddenly it's nearly the end of the quarter and
• 3:31
  everything needs updating quickly because the VA TS due.
• 3:33
  Or from April. You're making such digital
• 3:35
  returns are due. And what usually sits underneath
• 3:38
  that situation isn't even laziness, it's just pure
• 3:41
  overwhelm. Business owners are juggling so
• 3:44
  many responsibilities that the bookkeeping often ends up at the
• 3:47
  bottom of the list. But the longer the bookkeeping
• 3:49
  is left, the harder it becomes to catch up and more
• 3:52
  importantly, the less useful the information becomes.
• 3:55
  Financial information and the data that that holds is the most
• 3:59
  valuable to a business owner when it is current and up to
• 4:02
  date. If you are looking at your
• 4:04
  numbers from three months ago, you're making decisions based
• 4:07
  off history rather than reality. Keeping bookkeeping up to date
• 4:10
  is not about ticking A compliance box.
• 4:12
  It's about having accurate information so that you can run
• 4:15
  the business properly and make decisions on real data to help
• 4:19
  you build a Better Business. Red flag #3 We talked about this
• 4:23
  a few weeks on the podcast, Revenue increasing, but your
• 4:26
  profits Shrinking. This one surprises quite a few
• 4:28
  people because many business owners assume that if revenue is
• 4:32
  growing, then the business must be doing well, right?
• 4:34
  But that's not always the case. I've seen businesses double
• 4:38
  their revenue while becoming more stressed financially.
• 4:40
  Why? Well, because growth without
• 4:42
  structure can create pressure. More clients means more work,
• 4:46
  more work can mean more costs, and more costs can mean margins
• 4:50
  quietly shrinking in the background.
• 4:52
  If your pricing has not kept pace with growth, or if systems
• 4:55
  have not evolved with the business, that growth could
• 4:58
  actually make things harder for you.
• 5:00
  Yes, I agree revenue looks impressive as it's increasing,
• 5:04
  but it's the profit what makes a sustainable business.
• 5:07
  Red flag for using VAT money as working capital.
• 5:11
  Now this is a very common situation for businesses that
• 5:15
  are growing quickly. A client pays an invoice, the
• 5:18
  payment lands in the bank account.
• 5:20
  Part of that payment is the VAT belongs to the HMRC.
• 5:23
  But we always advise for business owners that when they
• 5:25
  come to work with us at ABCSUK to put that immediately into a
• 5:29
  pot or a savings account. So because that money is not
• 5:32
  yours to touch, what often happens is because the VAT
• 5:36
  returns not due yet, it can feel like an available cash fund.
• 5:40
  So it gets used to pay suppliers wages, cover expenses, sometimes
• 5:45
  simply just to keep the business moving.
• 5:47
  But then the VAT quarter arrives and suddenly there's a very
• 5:50
  uncomfortable realization that a significant amount of money
• 5:54
  needs to pay to HRC and it's just not there in the business
• 5:57
  owner's bank account. The VAT was never the business's
• 6:00
  money, it was simply passing through the business to HMRC.
• 6:05
  The businesses that manage this well usually separate the VAT
• 6:07
  money mentally or physically so it's not accidentally spent.
• 6:11
  If you use one of the online banks like Monzo and Styling,
• 6:13
  you can actually set up automatically having the VAT
• 6:16
  money move to a POT whenever income enters your business
• 6:19
  account. Doing this means VAT is less
• 6:21
  likely to call you a surprise because VAT surprises are rarely
• 6:24
  ever actually surprises. They're just usually visibility
• 6:27
  problems or you've not got your systems in place.
• 6:30
  Red flag 5. Every financial decision is
• 6:33
  reactive. Now, this is something I see
• 6:35
  quite often when businesses are under pressure, when they're
• 6:37
  stretched, decisions are made quickly.
• 6:39
  There's no time to think about it and look at the data.
• 6:42
  Problems are solved in the moment.
• 6:44
  You're always firefighting, but there's very little forward
• 6:47
  planning. Cash flow forecasting hasn't
• 6:49
  been looked at. Tax planning happens very late.
• 6:53
  Major decisions are made without financial context, and when a
• 6:56
  business reaches this stage, it often feels like everything is
• 6:59
  slightly chaotic. But the solution is not
• 7:02
  necessarily to work harder. It's usually to introduce a bit
• 7:05
  more structure and a few more systems looking ahead, rather
• 7:08
  than constantly firefighting. Because businesses run far more
• 7:11
  smoothly when financial decisions are proactive rather
• 7:14
  than reactive. Now I want to be really clear
• 7:16
  about something. Every single red flag that I
• 7:18
  have mentioned today is fixable. These are not signs that a
• 7:22
  business is failing. They are simply signals that
• 7:25
  something needs attention. And often the earlier those
• 7:28
  signals are spotted, the easier they are to resolve.
• 7:31
  Running a business will always involve uncertainty and
• 7:34
  challenges. That's completely normal.
• 7:37
  But financial clarity removes a huge amount of unnecessary
• 7:41
  stress and I would not be doing my job as a bookkeeper, an
• 7:44
  accountant, without telling you of these big red flags that I
• 7:47
  see time and time again when clients come to work with us at
• 7:50
  ABCSUK. So there's a five financial red
• 7:54
  flags I often see before businesses start to struggle.
• 7:58
  Avoiding the numbers and burying their heads in the sand.
• 8:00
  Bookkeeping falling behind by months and months, Revenue
• 8:04
  rising but profits shrinking. Using their VAT money
• 8:08
  unintentionally or to keep themselves afloat and making
• 8:13
  every financial decision reactively rather than planning
• 8:16
  ahead and being proactive. If any of those sound familiar,
• 8:19
  please know that you're not alone.
• 8:20
  This is a judgement free zone here too.
• 8:22
  Most businesses go through periods where systems need to
• 8:25
  evolve as the business grows. But ignoring the warning signs
• 8:28
  never improves the situation. Fixing them early does.
• 8:32
  If you found this episode useful, please do take a few
• 8:35
  seconds to like, rate and review the podcast, subscribe and hit
• 8:38
  that notification bell on YouTube so that you know in the
• 8:40
  next episode of the Three Bees Podcast goes live.
• 8:44
  It genuinely helps more business owners find these conversations
• 8:48
  so we can all build better businesses.
• 8:50
  And that's the whole point of this podcast.
• 8:54
  And if your business finances currently feel messy, chaotic,
• 8:57
  reactive or unclear, that is exactly the kind of problem we
• 9:00
  help clients solve at ABCS UK because your business deserves
• 9:05
  better. Thank you for listening.
• 9:08
  This has been the three BS podcast I've been Stephanie, and
• 9:10
  I'll see you next week for the next episode.
• 9:12
  Bye. And that brings us to the end of
• 9:15
  another episode of The Three B's podcast.
• 9:17
  I hope you found it useful and that you're walking away with
• 9:19
  some motivation, inspiration, or education to help you build a
• 9:23
  Better Business. Don't forget to subscribe, leave
• 9:26
  a review, and of course, connect with us on social media for more
• 9:29
  insights, tips, and behind the scenes content.
• 9:31
  Your next step in building a Better Business is just a click
• 9:34
  away. I can't wait to connect with you
• 9:35
  and I'll see you on the next episode.
• 9:37
  Bye.